Retroactive Tax Compliance: A Comprehensive Guide for Reclaiming Old Income Tax Refunds for Individual/HUF Assessee
Punit Bhandari
Punit Bhandari, is a Qualified Chartered Accountant-
Senior Partner, M/s Bhatia Bhandari Associates
His Expertise: Taxation, Audits, SAP Implementation & Non-Resident Investment Solutions
The world of income tax can often feel like a labyrinth, especially for those who have missed filing their returns in previous years. If you’re an NRI or an Indian taxpayer who has overlooked your income tax returns from the 2008-09 period, you’re not alone. Many employees and other classes of assessees have failed to file returns between 2010 and 2020. The good part is that TDS (Tax Deducted at Source) can still be claimed! This article will guide you through handling old income tax returns, particularly focusing on leveraging TDS claims to recover your hard-earned money.
Understanding the Importance of Filing Income Tax Returns
Filing income tax returns is not just a legal obligation; it’s also a way to ensure that you comply with tax regulations and can claim refunds where applicable. Many individuals, especially NRIs, may not realize the significance of filing returns for past years.
Why Should You Check Whether Income Tax Returns from 2010 to 2020 Have Been Filed?
- Claim Refunds: If TDS was deducted from your income but you didn’t file a return, you might be eligible for a refund.
- The primary benefit is recovering your overpaid money. If you’ve paid excess taxes through TDS, claiming a refund ensures you get those funds back. Additionally, a refund may lower your annual tax liability. This adjusted tax picture may place you in a lower tax bracket, saving you even more money.
The TDS Connection: What You Need to Know
TDS is a method of collecting income tax in India, where a certain percentage of your income is deducted at the source. If you have been employed during the years you missed filing, TDS was likely deducted from your salary.
How TDS Works
- Deduction at Source: If any payments are subject to TDS, the payer deducts TDS from the payable amount before making the payment to you. The deducted amount is then deposited with the government under ‘TDS.’
- Tax Credit: This deducted amount is credited to your tax account, which you can claim when you file your returns.
“Many assessees failed to file their returns between 2010 and 2020, but they can still claim TDS. During the lockdown, I helped several assessees recover their refunds.”
Steps to Process Old Income Tax Returns
If you’re ready to work out the unclaimed taxes, here’s a step-by-step guide to help you through the process.
Step 1: Gather Necessary Documents
Before you start, collect all relevant documents, including:
- Form 16: This is provided by your employer and contains details of your salary and TDS deducted.
- Bank Statements: These will help you verify any other income you may have.
- Investment Proofs: Documents related to investments that can be claimed for deductions.
- Tax Working: Prepare the tax computation for all the financial years that were missed and determine the tax status for each relevant year.
Step 2: Check Your Eligibility
Ensure that you are eligible to file returns for the missed years by computing taxable income for the relevant financial years and confirming your eligibility for refunds. Generally, you can file a current year return with a brought forward of unclaimed TDS in current year income tax returns and corresponding to taxable income, and select the year to which it relates in the TDS column in the income tax form.
Step 3: Use the Right Forms
The Income Tax Department provides different forms for filing returns. For individuals, the most commonly used forms are:
- ITR-1: For salaried individuals with income up to ₹50 lakh & income from House property (1 Property)
- ITR-2: For salaried or other individuals with income exceeding ₹50 lakh (with Schedule A/L).
- ITR-2: For salaried/other individuals with income from salary & capital gains.
- ITR-2: For salaried/Other individuals with Income from Salary & Income from House property (2 Properties)
- ITR-3: For Business & Profession Assessee (in case of BOA & Financial information to be disclosed )
- ITR-4: For Business & Profession Assessee (Governed by Section 44AD/44ADA Presumptive Section )
Step 4: Fill in the Details
When filling out the forms, ensure that you accurately report your income, deductions, and TDS. It is crucial for claiming any refunds.
Step 5: Submit Your Returns
Once you have filled in the necessary details, submit your returns online through the Income Tax Department’s e-filing portal. You will receive an acknowledgment once your return is successfully filed.
Step 6: Follow Up on Your Refund
If you are eligible for a refund, keep track of your application status. The Income Tax Department typically processes refunds within a few weeks. However, delays may occur when claiming old refunds, as these are processed by the new artificial intelligence system at CPC Bengaluru, which governs Sections 143(1) and 154.
Common Mistakes to Avoid
While filing old returns, it’s easy to make mistakes that could delay your refund or lead to penalties. Here are some common pitfalls to avoid:
- Incorrect Proper Tax Working: In case there is no refund and still tax deducted in missed years is claimed, then it shall have consequences.
- Missing Income Sources: Don’t forget to include all sources of income, as this can lead to discrepancies.
- Bank Validations: If the bank validations have failed, then refunds can’t be claimed as per the new norms.
Section 139 of the Income Tax Act: A Guide to Filing Returns and Rectifying Past Omissions
Section 139(1) of the Income Tax Act, 1961, governs the filing of income tax returns, mandating individuals and entities with income exceeding the exemption limit to submit their returns within the specified due dates. This subsection covers mandatory and voluntary returns, ensuring compliance with tax obligations.
Filing Old Returns: Section 139(8A)
For taxpayers who have failed to pay proper taxes, Section 139(8A) offers solutions. This provision allows the filing of old returns under specific conditions, providing an opportunity to rectify past omissions and avoid potential penalties. Section 139(8A) is particularly relevant for individuals who need to address historical tax liabilities.
Key Points:
- Section 139(1): Mandatory and voluntary returns must be filed by the due date to avoid penalties
- Section 139(8): This enables the filing of old returns if taxes were not properly paid, offering a chance to correct past errors.
Conclusion: Take Action Now
Navigating the process of filing old income tax returns may seem daunting, but it’s a necessary step to reclaim your financial health. By understanding the importance of TDS and following the outlined steps, you can successfully file your returns and potentially recover money that is rightfully yours.
If you’re an NRI or an Indian taxpayer who has missed filing returns, now is the time to take action. Don’t let the past hold you back; start the process today and ensure that you are compliant with tax regulations. Remember, the sooner you file, the sooner you can enjoy the benefits of your hard-earned money!
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